It is more than
four months now since the elections, and the formation of a Belgian
government seems further away than ever. Walloon and Flemish
politicians are diametrically opposed on a new Finance Act. The
degree of regional fiscal autonomy is the discordant issue.

Walloon
leaders and a few Flemish politicians to the left of
the political spectrum are steadily scaring their people that the
extension of fiscal autonomy would lead to tax competition and the
dismantling of the interregional solidarity. In the same claim
they frighten their followers that tax competition would result in
automatic and massive loss of prosperity for Wallonia (the region that
has been at the receiving end of the interregional transfers for many
decades now). Curiously enough even economics
professor De Grauwe agreed with this
populist argument.

This
representation of facts is obviously erroneous for two reasons.

Regional tax autonomy does not exclude other
mechanisms of
interregional solidarity when negotiators consider this justified.

The
creativity and sense of responsibility resulting from fiscal autonomy
generate a dynamic of rationalization and innovation of which both
regions benefit. The welfare effects thereof are generated
autonomously and obviously do not go at the expense of the other
region.

The
political statement that fiscal autonomy and tax competition between
regions would be detrimental is therefore fundamentally flawed.

For the
political establishment, fiscal rivalry between regions would of
course result in their discomfort of having to spend taxpayers' money
less lavishly. For the subjects however, both Walloon and Flemish
citizens lower on the social ladder, tax competition can
bring only blessings.

The consumer
benefits of a competitive environment are well known in the private
sector. Competing businesses assure lower consumers prices, better
products and favorable sales terms. At the macro level, the creative
force behind competition leads to optimal allocation of resources and
increases the wealth of all.

The same
advantages would apply to the public sector if this were to operate in
a competitive environment. Rivalry between administrative entities
would ultimately result in improved public service at better tax
conditions. Citizens should therefore welcome tax competition rather
than fear it. Likewise interregional cartel agreements on a
minimum tax rate or citizen-unfriendly public services should be
shunned
like the plague. Such restrictions would cripple the autonomy and
perpetuate the many Belgian inefficiencies and the country's
democratic
deficit.

Swiss
Model

Fiscal
autonomy is extremely limited in Belgium. The share of autonomous
regional resources amounts to hardly 5.8% of the federal budget. In
other federal states such as Switzerland or Canada this proportion
reaches up to 79%. Switzerland, the country with 7.5 million
inhabitants, four national languages and four religions is a complex
country just like Belgium. Still, thanks to its decentralized state
model, it seems to enjoy eternal peace between communities.

A comparison of fiscal autonomy in federal
states.
In Belgium, only registration taxes and death taxes are levied by the
regions,
which accounts for 4% of revenues.

The lion's share
of the Swiss budgets, authority and fiscal policy comes within the
competence of the 26
autonomous cantons. Differences in marginal income tax
rates are rather high, varying roughly from 2 to 20 percent. Total
public spending hardly reaches 35% of GDP (over 50% in Belgium). Still
the country has
exceptional medical and social services. It is leading in several
industrial sectors and is in the front position in technological,
ecological and medical advances. In just two generations, Switzerland
developed from an agricultural country to one of the most progressive
and wealthiest nations in the world. The Swiss declare
themselves as extremely satisfied with their quality of life,
and are counted among the happiest people in the world.

Fiscal
autonomy

Decentralized
governance and fiscal competition have clearly paid off in
Switzerland. Rather than to frustrate tax competition in a unitary
tax system, Belgium also should encourage it through decentralizing
fiscal and social responsibilities to a low administrative level
close to the citizens, preferably to the provincial level.

Small
administrative units such as the Belgian provinces and the Swiss
cantons have multiple advantages. Governors are close to their people
and understand their desires; local authorities can adapt their
socio-economic policies to local needs and conditions, and closely
involve their citizens in governance through referendums.

As an added
benefit, the decentralized Swiss state model can do with two management
levels fewer than the Belgian. Switzerland is neither plagued by the
ubiquitous tutelage of the EU and the constraints of a common
currency, nor does its decentralized structure need the intermediate
government level of regions and communities. Such a simple
administrative structure keeps the lines of communication shorter,
allows for a neat separation of responsibilities, and limits growth
of the parasitic public sector to a minimum.

But the biggest
advantage of all is that citizens and businesses can move rather
easily when a neighboring canton provides better public services at
better tax conditions. Such an ultimate democratic control by the
community keeps the growth of the state apparatus within reasonable
limits and ultimately results in good governance. Thanks to its
unique state model Switzerland became the fourth wealthiest nation in
the world despite its scarcity of arable land and natural resources
and its most difficult terrain.

Clear
separation of responsibilities

Political
conservatism crippled prior Belgian state reorganizations to
half-hearted reforms and left Belgium at present with the
least efficient state apparatus in Europe. Its
cost-heavy administrative structures are way too centralized.
Structural reforms in accordance with modern principles of subsidiarity
are actually decades overdue.

The complex and
over-centralized Belgian state model with its five levels of
government and overlapping responsibilities steadily cause conflicts
of authority and cripple the country into immobility. Belgian
politicians fruitlessly argued for two years about a
new color for the Belgian license plates and ten years
over the
construction of a tunnel the country, its commuters and
its harbor so urgently needed.

In a globalized
world, our over-indebted nation can no longer afford the waste of
crippling and parasitic government bodies. If Belgian politicians
really care about the welfare of the country and its citizens rather
than about the lucrative mandates the current structure offers them,
then they would better take inspiration from the Swiss state model.

A decentralized
structure based on 10, 11 or 12 provinces is perfectly conceivable
in Belgium. Just as in the decentralized Swiss model, the
intermediate level of regional governments provides no added value and
could simply be abolished. Unless of course politicians prefer
regionalizing the responsibilities of the federal level, and abolish
the unitary Belgian structure.

But even the
total transfer of all responsibilities from the Belgian government
level
to the sub-central level of the Flemish and Walloon Regions is in
fact only a modest step towards subsidiarity. Such a
"federalization"
to the sub-central administrative level hardly provides any new
safeguards against bureaucracy or incentives for empowerment and good
governance.

The Flemish urban planning regulations, introduced
soon after the matter was
regionalized, is the most striking example that regionalization
actually can make things worse. This over-restrictive central
planning scheme in the purest Soviet style
caused prices of building plots to triple in less than 10 years. Not
without reason ever more citizens rightly complain about the
increasingly patronizing regional Flemish government. Communal
authorities, chambers of
commerce, farmers
and entrepreneurs
alike strongly condemn the ever-increasing regional
bureaucracy.

Rethinking
Belgium

Really
decentralized governance could be realized if the provinces became
autonomous administrative entities, and both the national as well as
the regional government levels were abolished, or reduced to the
status of a consultative body between sovereign provinces. Not only
would the economization on bureaucratic personnel be gigantic, the
odds for good governance would finally become real.

For
understandable reasons, career politicians, unions and the hundreds
of thousands of civil servants populating the national and regional
levels of government, all laugh away such federation of independent
provinces as a utopian fantasy. The reality is that Belgian
Provinces are most suitably sized administrative units. Not only are
they economically viable entities, but they are likely to develop
into dynamic growth poles when governed as sovereign
nations. Luxembourg,
the neighboring sovereign state with a population only half the size of
a
typical Belgian province it is the empirical evidence thereof.

Barely a quarter
century ago Luxembourg had a predominantly heavy industry, very
similar to Wallonia, and was equally struggling to survive
globalization. Unlike the Walloon Region, Luxembourg as a small and
independent nation free from constraints of superstructures, was able
to conduct a decentralized industrial policy adapted to its
territory. In less than one generation Luxemburg restructured its
economy into a
modern service industry. At present Luxembourg has in
fact an economic track record even better than Switzerland. Today its
490,000 residents enjoy the highest living standard in the world,
nearly twice as high as the Belgian, confirming thereby the general
rule that small
states systematically and significantly deliver
better performances.

Small nations
such as Switzerland and Luxembourg prove that decentralized
governance is functioning, and delivers both life satisfaction and
prosperity. The Swiss cantonal autonomy guaranteed community peace
since decades. With such a modern decentralized state structure
Belgium could very well become a European Hong Kong or Singapore.

Hopefully it will not take another decade before
Belgian politicians finally realize that decentralization is the only
way to go.

Dr. Hans Herman
Hoppe
shows that small countries are
performing much better than large ones.
Prosperity, well being and democratic rule are better in small states.
He explains why the EU superstate is not about free trade and peace,
but about bureaucracy and about harmonising
legislation and tax regimes throuhout Europe to avoid
tax competition and enablingexploitation
of hard working European citizens by the political elites.

In the European
Parliament MEP Daniel Hannan held a
pathetic plea against EU attempts to harmonize taxes and for more
tax competition...
....The parliament seats were nearly empty. The
empty seats are symptomatic for how much absent MEP's
care about the prosperity of the people they represent !